Activist investor targets Hills after 1-Page success

One of the oldest listed companies on the ASX looks set for a shake-up, as the activist investor behind the overthrow of the leadership at failed recruitment tech company 1-Page has accumulated a significant position in struggling tech company Hills.

Merchant Group's Andrew Chapman started buying up the stock six months ago, but tight liquidity has meant it took him until earlier this month to amass a shareholding of more than 5 per cent.

Merchant Group's Andrew Chapman has been buying up stock in struggling technology company Hills, with an aim of shaking up the board and rebuilding shareholder value. Sharon Smith

Despite having once been valued at $4 billion, it is now a shadow of its former self, fetching only 16¢ a share with a market cap of $37.1 million, despite generating $271.8 million in revenue last financial year.

Under the leadership of former Telstra executive Ted Pretty in 2012, the business pivoted towards technology, with focus on electronics, security systems, communication and healthcare technologies.

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Mr Chapman told The Australian Financial Review he believed Hills had since failed to kick on in the competitive tech scene and he is advocating for a board refresh.

"It's a company generating $260-280 million in sales, but they're barely making any profits and haven't moved with the times," he said.

"They made a bunch of average acquisitions back when Ted Pretty was in charge and they paid over the odds and have not run them efficiently."

Mr Chapman argued that the company directors, who include former IBM Australia and New Zealand head Philip Bullock and Victorian Legal Services Board chairwoman Fiona Bennett, were overpaid for such a small market capitalisation. They earn around $100,000 a year each.

Jewel in crown

Mr Chapman said the jewel in the company's crown was its health business, which he believed could be successful, but was being held back by other divisions such as its distributions arm, which was responsible for selling other companies' electronics products.

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"Hills has not been transparent in its results. It has been obvious that it is hiding some businesses within that are worth shutting down or spinning off, and for some reason they haven't been doing it," he said.

With the exception of new board member and former Epworth HealthCare Group boss Alan Kinkade, who was appointed in February, Mr Chapman said he did not believe any of the other board members had enough experience in this sector to help drive the company forward.

Hills' health division has created nurse call solutions (technology that enables patients and clinical staff to summon the help of a nurse) and patient engagement technologies and is easily the best performing segment of the company, growing 25.7 per cent in the six months to December 31.

While the business has commenced a turnaround strategy, returning to profitability for the first time in years in the 2017-18 financial year with a $400,000 profit compared to a net loss of $85.9 million in 2015, its share price has not rebounded.

At its most recent peak in 2007, the company had a market capitalisation of over $4 billion, but by 2013 it had plummeted to around $400 million and today it only fetches $37 million, with its closing price on Friday just 16¢.

Hills chairwoman Jennifer Hill-Ling believes the company is getting back on track. Supplied

Chairwoman Jennifer Hill-Ling is the daughter of the original founder and has led the board since 2005, as well as being involved in the company in various leadership roles for decades.

Her family still owns more than 14 per cent of the company.

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Ms Hill-Ling said she was confident the company was taking the necessary steps to turn the business around and generate value for shareholders. She did not believe the current share price reflected the true value of the company.

"The board and management are quite confident we can grow the business and the profitability of the business," she said.

"The market hasn't recognised the turnaround in FY18 and FY19 when they've looked at us and I don't think we've had the transparency perhaps for them to see which parts of the business are performing well and what's not."

Consultants appointed

Last week Hills told the ASX it had appointed independent consultants AquAsia to conduct a strategic review of the company, in addition to an internal review focused on driving operational efficiencies and finding cost savings.

"We felt we needed a closer look at the distribution business with the benefit of consultants with deep knowledge in supply chain logistics, the structural model and inventory management," Ms Hill-Ling said.

"It's going to make for a big change in the way it operates and performs."

Ms Hill-Ling said she took Mr Chapman's concerns seriously and the company was also reviewing the board to ensure it had the necessary skills and experience to help drive the company forward.

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However, she said she was confidant that the right people were in place.

"We have good operational skills and experience across each of the areas where we conduct business and we also have finance, governance, legal and merger and acquisition experience," Ms Hill-Ling said.

"I want to ensure as a major shareholder myself that we maximise the value for all shareholders and that we return the company to acceptable levels of profitability."

For now, Mr Chapman said he intends to continue acquiring Hills shares, and is supportive of the current chief executive David Lenz. He said he hoped Hills shares could get back to around 30¢ in the near term.

"We've woken them up a bit," he said. "At the end of the day I'm just trying to make money."